VideoCritics of auditbots argue that auditing can never be totally automated, and will always require human intervention. "You can't audit a company in real time, because judgments and estimates are involved, and human beings make those after the fact," insists Brian Kinman, head of PricewaterhouseCoopers's enterprise risk-management practice.
Adds Frank Gori, global director of assurance services at Ernst & Young: "Technology tools are only tools. The most important element in the auditing process is your people bringing skepticism to the table to ensure quality."
Even Vasarhelyi admits that auditbots are unlikely to usher in an era of flawless financial reporting. In the first place, it's relatively easy for bad guys to keep one step ahead of the software, much the way computer-virus makers engage in a kind of arms race with computer-security experts. By the time the security gurus have figured out how to detect and disable the latest virus, the evil virus-makers have unleashed new ones. A similar arms race could erupt between corporate crooks and auditbot developers. And even if the software triumphed, says Vasarhelyi with a sigh, "if management is really crooked, they'll do something [else] anyway."
Audit.com
While the widespread use of auditbots is still a blue-sky dream, in the here and now, independent auditors are increasingly relying on Web-based software.
Ernst & Young, for one, supplies its teams with a Web-based portfolio of audit tools called EY/NexGen. Currently in what the firm labels "early adoption mode," NexGen helps multinational teams collaborate by providing a suite of Web-based software tools that let team members share documents and communicate with one another.
NexGen also lets a project manager bring in subject-matter experts from around the world on an as-needed basis, explains Frank Gori, E&Y's global director of assurance services. "Anyone with user access and a password can engage in the review or creation of work papers in real time," he says. NexGen also provides online-collaboration software that lets professionals working on an audit project conduct virtual meetings over the Internet.
After some 18 months in development and testing, NexGen is being rolled out to E&Y's Business Risk Services Group and selected clients. It augments, but probably won't replace, the firm's standard desktop auditing tool, called EY/AWS 1.5 (AWS stands for Auditor's Work Station); small clients--those without multinational operations--simply don't need the benefits NexGen offers. "For a small client with, say, $20 million in revenue, using a tool like NexGen is like bringing a howitzer to the table," says Gori.
Similarly, Deloitte & Touche uses two Web-based audit systems. The first, known as ACL Web, is based on a commercial application from ACL Services Ltd., though it has been customized for Deloitte's auditors. ACL Web addresses a key barrier to automated auditing: incompatible data formats. To help Deloitte auditors get a client's data into a single format, ACL Web acts as a kind of self-help kiosk, providing lists of questions and terminology so auditors can work with a client's IT department. The Web-based tool also provides preprogrammed tests that auditors can apply to the data, rather than have to create new tools on the fly, explains John Fogarty, Deloitte's director of audit methodology, policy, and procedures.
Deloitte's second Web-based system is somewhat experimental. Developed with software vendor Intacct Corp., it takes the entire automated-audit process one step further by actually embedding the audit system into the accounting system. Among other benefits, this eliminates the need to reformat financial data before it can be audited. Although the current product is suitable only for small and midsize accounting firms, that could change, says Fogarty: "We developed it as something we might use in our own practice." Nothing blue-sky about that. -- P.K.
Outsourcing
ASPs: Alive and...Well, Alive
If you were a CFO at a prospective client company, you had to love the pitch: instead of paying hefty licensing fees to a software vendor and then waiting for your internal IT department to roll out, say, a big enterprise resource planning system, why not rent it from a company that was expert in deploying and managing it? You'd save a massive capital outlay, be able to predict your monthly expense, and add or reduce capacity as needed.
True, your counterparts at the companies that offered this new approach (dubbed ASPs, for application service providers) didn't have it so good: the infrastructure needed to offer such services was costly, the per-user/per-month pricing scheme didn't produce the up-front cash infusion that could have helped firms find their feet, and the companies most eager to embrace this new approach proved to be the dot-coms, which very soon stopped paying bills altogether.
Soon the market leaders were either declaring Chapter 11 (USinternetworking, also known as USi) or seeing their share prices plunge as precipitously as a theme-park waterslide (Corio Inc. went from $22 a share at its July 2000 initial public offering to about 70 cents as of press time). Announcements of client wins dwindled, bad news for an industry that admitted even in good times that survival depended on achieving critical mass.
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